Investor Relations

Press Release

SAN JOSE, Calif.-July 23, 2013-Harmonic Inc. (NASDAQ: HLIT), the worldwide leader in video delivery infrastructure, announced today its preliminary and unaudited results for the second quarter 2013.

On March 5, 2013, Harmonic completed the sale of its Cable Access HFC business and, accordingly, the following pertains only to its continuing operations.

Net revenue for the second quarter of 2013 was $117.1 million, compared with $101.7 million for the first quarter of 2013 and $122.1 million for the second quarter of 2012.

Bookings in the second quarter of 2013 were $126.3 million, compared with $110.1 million for the first quarter of 2013 and $128.5 million for the second quarter of 2012.

Total backlog and deferred revenue was $132.5 million as of June 28, 2013, compared to $126.3 million as of March 29, 2013.

GAAP net loss for the second quarter of 2013 was $3.4 million, or ($0.03) per diluted share, compared with a GAAP net loss for the first quarter of 2013 of $9.5 million, or $(0.08) per diluted share, and a GAAP net loss of $3.9 million, or ($0.03) per diluted share, in the second quarter of 2012.

Non-GAAP net income for the second quarter of 2013 was $5.6 million, or $0.05 per diluted share, compared with a non-GAAP net loss of $2.7 million, or ($0.02) per diluted share, for the first quarter of 2013, and a non-GAAP net income of $6.5 million, or $0.06 per diluted share, for the second quarter of 2012. See "Use of Non-GAAP Financial Measures" and "GAAP to Non-GAAP Reconciliations" below.

GAAP gross margin was 49% and GAAP operating margin was (4%) for the second quarter of 2013, compared with 45% and (15%), respectively, for the first quarter of 2013, and 45% and (3%), respectively, for the same period of 2012.

Non-GAAP gross margin was 54% and non-GAAP operating margin was 6% for the second quarter of 2013, compared with 51% and (3%), respectively, for the first quarter of 2013, and 50% and 7%, respectively, for the same period of 2012. See "Use of Non-GAAP Financial Measures" and "GAAP to Non-GAAP Reconciliations" below.

Total cash, cash equivalents and short-term investments were $161.7 million at the end of the second quarter 2013, down $66.6 million from $228.3 million in the prior quarter, primarily due to the repurchase of the Company's common stock in the second quarter under its tender offer, which closed on May 24, 2013, and its share repurchase program. The Company generated approximately $24.8 million of cash from operations in the second quarter, and used approximately $85.6 million, excluding related costs, for its repurchase of approximately 12.0 million shares in the tender offer and approximately 1.8 million shares under its previously announced share repurchase program.

The Company also announced it will expand its existing share repurchase program by $85 million, providing for a total of approximately $100 million of share repurchases going forward. Since April 2012, Harmonic has authorized the repurchase of $220 million of its common stock, and has repurchased approximately $120 million of its common stock to date.

"Harmonic's results in the second quarter reflected a return to the quarterly trajectory we expected coming into the year," said Patrick Harshman, President and Chief Executive Officer. "Penetration into the broadcast and media market with our video processing technology drove the return to revenue growth and helped drive margins above our target for the quarter. We are also encouraged by customer feedback for our technology growth drivers: converged cable access platform, or CCAP, next-gen video compression and playout, Ultra HD, over-the-top and multiscreen. Specific to CCAP, we received our first order and made our first shipment of the NSG Pro during the quarter. Overall, our improved financial performance and expanded share repurchase commitment demonstrate our continuing focus on creating shareholder value."

Business Outlook

For the third quarter of 2013, Harmonic anticipates:

Net revenue in the range of $115 million to $125 million

GAAP gross margins in the range of 45.0% to 46.0%

GAAP operating expenses in the range of $60.5 million to $61.5 million

Non-GAAP gross margins in the range of 50.0% to 51.0%

Non-GAAP operating expenses in the range of $54.5 million to $55.5 million

See "Use of Non-GAAP Financial Measures" and "GAAP to Non-GAAP Reconciliations" below.

Conference Call Information

Harmonic will host a conference call to discuss its financial results at 2:00 p.m. Pacific (5:00 p.m. Eastern) on Tuesday, July 23, 2013. A listen-only broadcast of the conference call can be accessed either from the Company's website at www.harmonicinc.com or by calling +1.847.944.7317 or +1.866.297.6395 (passcode 35192172). A replay of the conference call will be available after 4:30p.m. Pacific at the same website address or by calling +1.630.652.3042 or +1.888.843.7419 (passcode 35192172).

About Harmonic Inc.

Harmonic (NASDAQ: HLIT) is the worldwide leader in video delivery infrastructure for emerging television and video services. The Company's production-ready innovation enables content and service providers to efficiently create, prepare, and deliver differentiated services for television and new media video platforms. More information is available at www.harmonicinc.com.

Legal Notice Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements related to our expectations regarding: our final results for the second quarter ended June 28, 2013; our expectations concerning quarterly growth during 2013; our continuing focus on creating shareholder value; customer feedback for our technology growth drivers; and net revenue, GAAP gross margins, GAAP operating expenses, non-GAAP gross margins and non-GAAP operating expenses for the third quarter of 2013. Our expectations regarding these matters may not materialize, and actual results in future periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include the possibility, in no particular order, that: the trends toward more high-definition, on-demand and anytime, anywhere video will not continue to develop at its current pace or will expire; the possibility that our products will not generate sales that are commensurate with our expectations or that our cost of revenue or operating expenses may exceed our expectations; the mix of products and services sold in various geographies and the effect it has on gross margins; delays or decreases in capital spending in the cable, satellite and telco and broadcast and media industries; customer concentration and consolidation; the impact of general economic conditions, including as a result of recent turmoil in the global financial markets, particularly in Europe, on our sales and operations; our ability to develop new and enhanced products in a timely manner and market acceptance of our new or existing products; losses of one or more key customers; risks associated with our international operations; dependence on market acceptance of several broadband services, on the adoption of new broadband technologies and on broadband industry trends; inventory management; the lack of timely availability of parts or raw materials necessary to produce our products; the impact of increases in the prices of raw materials and oil; the effect of competition, on both revenue and gross margins; difficulties associated with rapid technological changes in our markets; risks associated with unpredictable sales cycles; our dependence on contract manufacturers and sole or limited source suppliers; the effect on our business of natural disasters; the risks that our international sales and support center will not provide the operational or tax benefits that we anticipate or that its expenses exceed our plans; and the risk that our share repurchase program will not continue to result in material purchases of our common stock. The forward-looking statements contained in this press release are also subject to other risks and uncertainties, including those more fully described in Harmonic's filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2012,our Quarterly Report on Form 10-Q for the quarter ended March 29, 2013, and our Current Reports on Form 8-K. The forward-looking statements in this press release are based on information available to the Company as of the date hereof, and Harmonic disclaims any obligation to update any forward-looking statements.

Use of Non-GAAP Financial Measures

In establishing operating budgets, managing its business performance, and setting internal measurement targets, the Company excludes a number of items required by GAAP. Management believes that these accounting charges and credits, most of which are non-cash or non-recurring in nature, are not useful in managing its operations and business. Historically, the Company has also publicly presented these supplemental non-GAAP measures in order to assist the investment community to see the Company "through the eyes of management," and thereby enhance understanding of its operating performance. The non-GAAP measures presented here are gross margin, operating expenses, net income and net income per share. The presentation of non-GAAP information is not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP, and is not necessarily comparable to non-GAAP results published by other companies. A reconciliation of the historical non-GAAP financial measures discussed in this press release to the most directly comparable historical GAAP financial measures is included with the financial statements contained in this presentation. The non-GAAP adjustments described below have historically been excluded from our GAAP financial measures. These adjustments are costs related to consulting fees associated with a potential proxy contest, restructuring and related charges and non-cash items, such as stock-based compensation expense, amortization of intangibles, and adjustments that normalize the tax rate. With respect to our expectations under "Business Outlook" above, reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available without unreasonable efforts on a forward-looking basis due to the high variability and low visibility with respect to the charges which are excluded from these non-GAAP measures. The effects of stock-based compensation expense specific to common stock options are directly impacted by unpredictable fluctuations in our stock price. We expect the variability of the above charges to have a significant impact on our GAAP financial results.